Comcast Remains Neutral

We reaffirm our long-term Neutral recommendation on Comcast Corp. (CMCSA). The company reported mixed financial results for the third quarter of 2013. While net income surpassed the Zacks Consensus Estimate, total revenue fell below the same. We believe the stock is currently fairly valued. Comcast carries a Zacks Rank #3 (Hold).

Why the Reiteration?

Comcast’s Cable businesses continue to perform well and the NBC Universal segment is witnessing improvement. As a result, Comcast is generating a record-high free cash flow. The company completed its major technical innovations, such as DOCSIS 3.0, all digital networks and a multi-platform content delivery network. Moreover, newly launched services such as Xfinity Home, Wi-Fi, Streampix, X1 as well as the upcoming X2 and the high-speed Metro Ethernet are long-term growth catalysts.

Recently, Comcast announced that it will offer more content of CBS Corp. (CBS) to its Xfinity TV subscribers. The content will be available to both Xfinity Streampix and Xfinity video-on-demand platforms. The new Xfinity TV set-top box has an innovative system to quickly navigate between live and on-demand programming. A new user interface incorporates content from Facebook Inc. (FB), Internet Radio of Pandora Media Inc. (P), and news and weather applications.

Comcast is aggressively targeting the small and medium sized business (SMB) segment and generated over $2.4 billion in revenues from it in 2012. In the first nine months of 2013, the company generated a record-high $2,365 million in revenues from SMB segment, reflecting 26.8% year-over-year growth. Comcast is expected to generate over $3 billion in revenues from the segment in 2013.

On the other hand, continued loss of video customers is a concern. Cable TV operators are gradually losing their hold in the U.S. pay-TV market. Comcast lost 129,000 residential video subscribers in third-quarter 2013 compared with 117,000 in the year-ago quarter. Another major concern for Comcast is flared-up programming expenses, which were 9.2% higher in the third quarter of 2013.